March 2016

Malta Aircraft Leasing

Guidelines Regarding Vat Treatment of Aircraft Leasing

VASSILIADES & CO (MALTA) LTD / 1

1. Aircraft VAT leasing in Malta

There are a number of reasons for why Malta can be opted for as a place from where one can registeror operate an aircraft. Some of these reasons include the fact that Malta is an EU Member State sincethe year 2004 and the use of English since it is a national language. Malta is a jurisdiction which is at-tractive for services regarding aviation and one of them is aircraft leasing.

2. A leasing agreement of an aircraft

An aircraft leasing agreement is an agreement involving the lessor (the owner of the aircraft) who contractsthe use of the aircraft to the lessee (the person who leases the aircraft) for a consideration. Moreover, afterthe end of the period of lease, the lessee may choose to purchase the aircraft at a percentage of the originalcost. The final purchase is an option which may be exercised by the lessee for a separate consideration.

3. The application of VAT to lease agreements

It is important to see the manner in which a particular aircraft is used. This means that there can be a situ-ation where the aircraft is employed by airline operators in international traffic. There can be a situationwhere the aircraft is purely used for private use.

In accordance with Maltese VAT legislation, the lease by a person established in Malta of an aircraft usedpurely for private use constitutes a taxable supply of a service taking place in Malta when the aircraft isleased for a continuous period of not more than 30 days and is put at the disposal of the customer in Maltaand when the aircraft is leased for a continuous period exceeding 30 days to a person, established in Malta.

For the manner in which leasing agreements are treated for VAT purposes, other than the case where anaircraft is used by airline operators in international traffic, the lease of an aircraft is subject to VAT with theright of deduction of input VAT by the lessor and this, where such right is applicable. This service is taxabledepending on the use of the aircraft that is attributed within the European Union’s airspace.

4. The calculation of the use of the aircraft within the airspace of the EU

It is hard to determine ahead of time, the exact aircraft’s movement so as to establish the period that theaircraft is used within the EU’s airspace as well as the time that it is used outside the EU.

So therefore, in order to calculate the estimated percentage portion of the lease that is based on the timethat the aircraft would be used in the EU’s airspace, the relevant calculation is done on the basis of anexpert technical study.

The standard VAT rate of 18% is applied on the established percentage of the lease that is deemed to berelated to the use of the aircraft in the airspace of the EU. The standard rate of VAT at 18% will be appliedonce the percentage of the lease which will be considered as the use of the aircraft within EU airspace isdetermined. The minimum percentage of time that an aircraft could be deemed to be in EU airspace is30%, thus resulting in a minimum effective rate of VAT of 5.4%.

VASSILIADES & CO (MALTA) LTD / 2

In order to calculate the chargeable proportion of the lease, this is dependent on the following:

• Aircraft Type

• Maximum Take Off Mass (kg)

• Maximum Fuel Capacity (kg)

• Fuel Burn

• Optimum Altitude (Feet at ISA conditions)

• Optimum Cruising Speed – True Airspeed (Knots)

So as for this treatment to be applied, the following conditions shall be applied:

• The leasing agreement must be between a lessor who is established in Malta and a lessee who is alsoestablished in Malta and who would not be eligible to claim input tax regarding the lease.

• The lease agreement shall not exceed 60 months.

• The lease instalments shall be payable every month.

• The lessor may be required by the Director General (VAT) to submit details about the aircraft use.

• Prior approval must be sought in writing from the VAT Department.

• Each application will be considered on its own merits.

• Other conditions which the Director General (VAT) may deem suitable may be imposed.

• After the end of the lease, where the lessee exercises the option to purchase the aircraft, if all the VATdue has been fully paid, a VAT paid certificate will be issued.

Contact Details:Address: 17, Macerata Street, Floriana FRN1080, MaltaTelephone Number : +356 21224185Fax Number: +356 21224242Mobile Number : +356 79225566Email Address: info@vasslaw.com.mt

www.vasslaw.com.mt